Alan Reynolds writes at Investors Business Daily:
I have long been baffled by the Quixotic efforts of such prominent economists Paul Krugman and Joe Stiglitz to blame economic stagnation in the eurozone on insufficient government spending.
Government spending in the euro countries rose from 45.3% of GDP in 2007 to 49.5% in 2013, according to Eurostat, with particularly huge increases in Greece, France, Italy and Portugal. The table below shows how little austerity there has been in euro public sectors.
Stiglitz writes: “Austerity had failed repeatedly, from its early use under U.S. President Herbert Hoover, which turned the stock-market crash into the Great Depression, to the IMF ‘programs’ imposed on East Asia and Latin America in recent decades. And yet when Greece got into trouble, it was tried again.”
In reality, those are all examples of the failure of higher tax rates, not government spending restraint.
In 1931, Herbert Hoover increased federal spending by 43% in a single year — to $4.3 billion from $3 billion in 1930. In June 1932, however, Hoover greatly increased all income-tax rates, with the top rate rising from 25% to 63%. Federal revenues fell from 4.4% of GDP in 1930 to 3.0% in 1933, but the private economy fell even more.
In spite of much talk about austerity since 2008, there has been virtually none to be found anywhere, except in a few pockets such as Estonia. For more, see Frank Hollenbeck analysis of the three types of “austerity,” Louis Rouanet on fake French austerity, and Peter St. Onge’s discussion on austerity as economic liberation. Philipp Bagus has addressed the myth of austerity, and Martin Masse asks if austerity caused the crisis in Europe:
